Prepaid cards

Prepaid cards are similar to debit or credit cards, in that they can be used anywhere displaying the Mastercard or Visa logo. The key difference is that prepaid cards offer no credit whatsoever, so always have to load your card up with funds before you use it.

Why use prepaid cards?

Well, there is no credit check undertaken in order to obtain one, so if you are 18 years old and a UK resident, you are likely to be accepted. This makes prepaid cards ideal if you find it difficult to obtain more mainstream credit cards – because of a bad credit score, or if you’ve simply never had credit before (young adults, or those new to the UK for example).

Prepaid cards have evolved over the years, now offering much more than simply an alternative for people who have few other choices. Most offer all the functionality you would expect from a high street bank account, including the ability to set up direct debits and standing orders, the facility to pay in wages, make online or mobile payments, and more. Further to this, prepaid cards can offer cashback or discounted retail goods, user-friendly apps to help budget and manage your finances, more favourable foreign exchange rates and fee-free use abroad, and cards that make business accounting less painful.

For all their impressive functionality though, prepaid cards do charge fees, and these fees are the most important aspect to consider when choosing your perfect card.

What fees can prepaid cards charge?

Before choosing your prepaid card, you should be fully aware of all the charges they incur. Typically, prepaid cards are either Pay Monthly or Pay As You Go. Pay Monthly cards charge a monthly fee, but tend to have lower fees for other banking transactions, while Pay As You Go cards tend to be free (or certainly less than the Pay Monthly option), but everyday transactions are more expensive.

Ideally, you should spend some time thinking about how you plan to use your prepaid card -whether you take out cash regularly, use your card solely for purchasing, plan to set up a number of direct debits, plan use your card abroad etc. – and then check out the fees for all those transactions. Here’s a list of some features that prepaid cards will charge you for. The exact list of chargeable services will vary from card to card.

Set-up fee: A one-off charge for obtaining the card.

Monthly fee: A charge that is debited from your account on a monthly basis (so you should ensure that there are sufficient funds in your account to cover this).

Loading: Some prepaid cards charge a fee for loading your card, and these are charged in myriad ways, depending on where and how you load your card, whether this is at a bank, at a Post Office, at a PayPoint, via a bank transfer, or via a debit or credit card. The amount charged differs from card to card but will either be a percentage of the amount loaded or a fixed amount per load.

Transactions: These are charges incurred whenever you use your card to make a purchase in the UK or abroad with your card (and the charges are different for the UK and abroad). The fees are either charged as a percentage of the amount spent or a set amount every time you use your card.

ATM cash withdrawals: These are charged for taking out cash using an ATM in the UK or abroad (and again are charged at different rates, depending on whether you use your card at home or away). The fees can be charged as a percentage of the amount withdrawn or a set amount per transaction.

Direct debits and standing orders: These are usually charged as a set price for each direct debit or standing order you set up.

Extra cards: This is typically a fixed charge per extra card/account you want to set up (for your children or spouse for example).

Failed standing orders or direct debits: This is a fee charged for every standing order or direct debit that fails due to insufficient funds.

SMS services: These can cover a wide range of charges, though you can usually opt not to have these activated if you have no need for them. They can include checking your balance, load alerts, card to card transfers, and blocking/unblocking your card using your mobile.

Paper statements: Some cards charge either a monthly fee if you opt for regular paper statements, or a one-off fee if you request a particular statement in paper form.

Replacement cards: As the name suggests, this is a charge if you lose or damage your card and need a replacement.

Renewal fee: Some prepaid cards have a shelf life, after which you will need to renew your account. The amount payable differs, but is usually around the same amount as the set-up fee.

Cancellation fee: Some cards charge a final fee to cancel and close your card/account.

Dormancy fee: This is a fixed monthly fee charged if there has been no activity on your card/account for a set period (where charged, these periods of time differ from card to card).

What types of prepaid cards are there?

Everyday prepaid: These cards can be good for use in the UK (though some can offer travel-related benefits, so always check the small print). As well as all the functionality one would expect from a prepaid card, some cards offer rewards such as cashback or discounts with selected retailers.

Credit building prepaid: These cards treat your monthly fee like a loan, and report back to the credit reference agencies that you have made successful payments over a given period. These cards can be useful if you need to build a healthy credit history from scratch or to rebuild a less than perfect credit rating.

Prepaid cards for teenagers: These cards are specifically designed for teaching children the art of saving, budgeting and general money management. They come with many online and mobile tools to help with this, including parental controls, the ability to separate funds for particular goals and targets, and the facility for relatives to pay in money for birthdays or pocket money.

Travel prepaid: These cards are best used abroad, as they tend to offer a better exchange rate than high street banks (though again, always check your card’s Ts & Cs carefully). They can often offer fee-free foreign purchases, but can charge for foreign ATM withdrawals, so always check. Some travel cards are dedicated to holding one currency only (dollars or euros for example), whereas others are designed to hold multiple currencies. Further to this, the way in which you load and use your card differs from card to card. With some, the card is loaded with sterling and then exchanged to the local currency at the point of sale abroad, whereas others require loading in sterling, then exchanging into your chosen currency before you travel. This last method can be useful as you can lock in your currency at a specific exchange rate. It is also important to remember to give yourself sufficient time to make any foreign exchanges before you travel.

Currency prepaid: Some currency cards are dedicated to a particular currency, while others can carry a number of currencies on one card. If you are planning to travel abroad, always check that your card includes the currency that you need before you load it all up (because transferring it back can incur fees).

Business prepaid: As the name suggests, these cards are only offered to those who own a business. Business prepaid cards tend to charge a set-up fee and/or monthly fees, but they can provide solutions for accounting and expense reporting that helps a business sort out its finances.

Is there a limit to how much I can load or spend on my prepaid card?

Yes, so it is always best to check your chosen card thoroughly before you apply to ensure that the limits fit your financial needs. There is often a cap on how much cash you can load at any one time, how much you can withdraw from an ATM, and the total balance you can carry on the card at any one time. Further to these limits for single transactions, some cards place further limits on the amount you can load, spend, or carry over the period of one year. Finally, it should be noted that some cards have minimum and maximum loads and spend, but will allow transactions above or below these amounts, but charge a fee for the privilege.